Côte D’Ivoire: Fourth Reviews Under the Arrangement Under the Extended Credit Facility and Under the Extended Arrangement Under the Extended Fund Facility, and Request for Modification of Performance criteria

Fourth Reviews Under the Arrangement Under the Extended Credit Facility and Under the Extended Arrangement Under the Extended Fund Facility, and Request for Modification of Performance Criteria-Press Release; Staff Report; Debt Sustainability Analysis; Supplementary Information; and Statement by the Executive Director for Côte d'Ivoire


Fourth Reviews Under the Arrangement Under the Extended Credit Facility and Under the Extended Arrangement Under the Extended Fund Facility, and Request for Modification of Performance Criteria-Press Release; Staff Report; Debt Sustainability Analysis; Supplementary Information; and Statement by the Executive Director for Côte d'Ivoire

Context and Recent Economic Developments

1. Despite temporary shocks in early 2018, economic indicators point to continuous robust growth (Figure 1). Real GDP growth decelerated in the first quarter because of base effects in agriculture, as cocoa and cashew production fell short of the 2017 bumper crops. Alongside, a temporary decline in extraction activities reflected lower oil output in mature fields, lower gas production in relation to increased reliance on hydro electricity generation, and labor strikes in gold mining. However, the manufacturing and service sectors have continued to grow rapidly. Accelerated clearance of overdue bills by the government and the increase in the minimum cocoa farmgate price by 7 percent from October are supporting demand. Credit to the economy expanded by 13.5 percent (y/y) at end-June 2018. Declining food prices kept inflation low, at 0.5 percent at end-September.

2. This strong growth has led to higher imports and a more deteriorated current account, although the WAEMU’s external position has improved. The current account deficit was revised upwards to 3½ percent of GDP in 2017, largely due to higher volumes of petroleum products and other imports. Import volumes have continued to grow strongly through June 2018, including for equipment goods—a reflection of strong investment dynamics. Combined with higher oil prices, this has led to further narrowing of the trade surplus. Meanwhile, regional WAEMU foreign exchange reserves increased from 4 months of imports coverage at end-2016 to 5.5 months in mid-2018, in part due to large Eurobond issuance by Côte d’Ivoire and Senegal.

3. Publication of revised 2016 and preliminary 2017 national accounts reduced nominal GDP. Revised national accounts for 2016 and preliminary ones for 2017 released in September 2018 led to a cumulative downward revision of nominal GDP by more than 5 percent, mostly because of lower deflators (Annex I). Consequently, all ratios in percent of GDP for those years and onward were revised upwards.

4. Financial conditions have tightened on global markets. Interest rates on the Ivoirien Eurobonds increased by about 100 basis points from a year ago, broadly in line with African frontier markets trends. The regional market conditions eased in mid-2018, following large Eurobond issuances by Côte d’Ivoire and Senegal, but began to tighten moderately again in the fall.

Text Figure 1.
Text Figure 1.

Côte d’Ivoire: Sovereign Bond Yield Spreads, 2013–18

(Basis points)

Citation: IMF Staff Country Reports 2018, 367; 10.5089/9781484390191.002.A001

Sources: J.P. Morgan; and IMF staff estimates.

5. The political landscape is becoming more complex. The party of President Ouattara won about half the seats in the October 2018 municipal elections. However, consolidation of the pro-presidential forces into a new unified party RHDP (Rally of Houphouetists for Democracy and Peace) led to unravelling of their long-time alliance with the PDCI party (Democratic Party of Côte d’Ivoire). Meanwhile, the presidential pardon in August 2018, including to members of the opposition party FPI (Ivoirien Popular Front), jailed after the 2010–11 post-election conflict contributed to national reconciliation and political normalization. With a political scene now defined along traditional parties’ lines, competition between these parties is intensifying ahead of the 2020 Presidential elections. The security situation has improved markedly since the early 2017 mutinies, but tensions from the 2010–11 civil strife have not been totally diffused.

Program Performance

6. Program performance was satisfactory, with all end-June 2018 and continuous performance criteria (PCs) and indicative targets (ITs) met (MEFP ¶¶16-17 and Table 1). The budget deficit reached 1.2 percent of annual GDP at end-June, better than programmed. Revenues outperformed, in part reflecting early profit distribution from oil-producing companies and cell phone license fees (0.2 percent of GDP), partly offset by shortfalls on fuel taxes (0.1 percent of GDP). Adjusting with delay to rising world oil prices, the authorities raised pump prices by 3 percent in April-May and another 5 percent in September-November and oil products’ prices by 7–12 percent in June. Expenditure has been compressed relative to program projections, particularly through under-execution of capital spending. The Eurobond issuance in March 2018 reduced net domestic financing well below the program PC. Pro-poor spending was maintained as programmed while domestic arrears clearance overshot program expectations.

Text Table 1.

Côte d’Ivoire: Fiscal Operations of the Central Government, 2018:H1

(Percent of GDP)

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Sources: Ivoirien authorities; and IMF staff estimates.

7. However, only three out of six applicable structural benchmarks (SB) were met and another one implemented with delay (MEFP ¶ 18 and Table 2). The authorities prepared an action plan to improve tracking of merchandise in transit by end-March. They also prepared a summary table of public enterprise debt service and the report on the financial situation of Air Côte d’Ivoire for end-June 2018. The government paid its contribution for the recapitalization of the public savings bank CNCE by June instead of end-March. However, fuel tax revenues fell short of program projections, largely because of lower-than-projected sale volumes as well as delayed pass-through of world to domestic fuel prices. Pending delayed adoption of the new Investment Code in August 2018, the authorities could not prepare an action plan to rationalize tax exemptions, and staff proposed to re-install it as new SB for end-March 2019.

Figure 1.
Figure 1.

Côte d’Ivoire: Recent Economic Developments, 2014–18

Citation: IMF Staff Country Reports 2018, 367; 10.5089/9781484390191.002.A001

Sources: Ivoirien authorities; and IMF staff estimates.

8. The authorities have made progress in debt restructuring of the national oil refinery SIR. The government granted a guarantee for the debt restructuring loan of 1½ percent of GDP in August, which is included in debt projections and DSA. This sets the stage for finalizing the agreement on financing terms with a private creditor and concluding the restructuring plan by December 2018 (missed end-December 2017 SB).

Outlook and Risks

9. Underpinned by buoyant demand, growth is projected to reach 7½ percent in 2018–19, decelerating to 6½ percent by 2023 (Figure 2, Tables 1–2). The higher farmgate cocoa price should support domestic consumption throughout next year, while private investment is envisaged to further strengthen, as Côte d’Ivoire’s frontier market status continues to attract new investors. Those investments are foreseen to sustain growth in the medium term, expanding productive capacity and strengthening the contribution of net exports. The current account deficit is expected to widen temporary to almost 4 percent of GDP in 2018, mainly due to higher global oil prices and strong petroleum imports. However, the expected launch of new oil wells, repairs at the national oil refinery, the tapering off of equipment imports, and improving terms of trade would narrow it down to 2½ percent of GDP by 2023.

10. Risks to the baseline are, however, tilted to the downside (Annex II). Growth could be hampered by rising protectionism, setbacks in trade partner countries, or tighter global financing conditions. Moreover, underperforming revenues or unforeseen outlays to support public enterprises and banks present a risk for growth-enhancing public spending, as would new social demands. Greater political uncertainty has so far not eroded the positive investor sentiment on Côte d’Ivoire, but it could affect investment negatively going into the 2020 Presidential election. On the upside, fiscal revenues and domestic demand could be lifted by rising prices of agriculture exports and enhanced African economic integration.

Text Table 2.

Côte d’Ivoire: Selected Economic Indicators, 2017–23

(Percent of GDP unless otherwise indicated)

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Sources: Ivoirien authorities; and IMF staff estimates.

Ratios to GDP rebased with the lower nominal GDP reflecting downward revisions to the national accounts for 2016–17.

Figure 2.
Figure 2.

Côte d’Ivoire: Medium-Term Outlook, 2015–23

(Percent of GDP, unless otherwise indicated)

Citation: IMF Staff Country Reports 2018, 367; 10.5089/9781484390191.002.A001

Sources: Ivoirien authorities; and IMF staff estimates.

Economic Policies for 2018–19

11. Economic policies in Cote d’Ivoire, the largest WAEMU member, will contribute to national and regional macroeconomic stability. To that effect, the 2019 budget is expected to lower the deficit to the WAEMU norm and raise tax revenue. It will rely on a balanced mix of financing in domestic and foreign currencies. Structural reforms should support the fiscal consolidation and enable private sector-led growth, while weaknesses in small banks should be addressed.

A. Converging to the WAEMU Fiscal Deficit Norm

12. The 2018 budget deficit target is within reach, while larger arrears repayment will marginally increase domestic financing needs (Tables 3a and 3b). The projected underperformance of fuel taxes (by 0.13 percent of GDP), largely reflecting lower-than-projected sales volumes as well as delayed pass-through of world to domestic fuel prices, will be partially offset by higher profit distributions from oil-producing companies. In view of depressed world market conditions for cashew nuts, the authorities cut the rate of the recently introduced export tax on them from 10 percent to 3.5 percent. These and other changes have resulted in fiscal revenues projected slightly below program targets (by mere 0.05 percent of GDP, reflecting satisfactory collection of non-oil revenue), which the authorities plan to offset by curtailing public investments (MEFP ¶28). This should keep the budget deficit to the program target of 4.0 percent of GDP (rebased with lower nominal GDP). Staff supports the authorities’ request for modifying the end-2018 performance criterion on net domestic financing (by less than 0.1 percent of GDP) to allow for higher arrears repayment.

Text Table 3.

Côte d’Ivoire: Compliance with the WAEMU Convergence Criteria, 2015–19

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Sources: Ivorien authorities; and IMF staff estimates.

Includes grants.

Includes central government domestic arrears and state-owned enterprise debt.

Sources: Ivoirien authorities; and IMF staff estimates and projections.

13. In line with the program objectives, the 2019 budget will be anchored by the WAEMU deficit target of 3 percent of GDP (Text Table 3). To achieve the 1 percentage point of GDP fiscal consolidation, the Government has adopted a draft budget law that is consistent with boosting the tax revenue-to-GDP ratio by 0.5 percentage point (end-October SB, MEFP ¶31) through a combination of tax policy and revenue administration measures, more than offsetting a projected decrease in non-tax revenue and grants by 0.4 percentage point of GDP. Consistent implementation of the public wage bill strategy adopted in 2014 is expected to reduce the wage bill by 0.2 percentage point of GDP. Stricter internal controls and rising efficiency of government operations is projected to restrain other current expenditure growth below GDP expansion, thus reducing it by 0.4 percent of GDP. Moreover, better prioritizing foreign-financed projects should reduce capital spending by another 0.3 percentage point.

B. Boosting Domestic Revenue Mobilization

14. To sustain fiscal consolidation while providing sufficient space for investment and social spending, the authorities reaffirmed their commitment to mobilizing additional tax revenues in 2019. The private sector was consulted in the budgetary process underpinning the projected increase in the tax revenue-to-GDP ratio by 0.5 percentage point.

  • Tax and customs measures. About half of the expected revenue would come from re-introducing the cocoa registration tax and new tax policy measures (MEFP ¶31). The latter include changes to excises, provisions related to VAT exemptions, new export taxes on cottonseeds and a re-adjustment of the export tax on cashew nuts (temporary lowered in 2018). The remainder would be derived from tax and custom administration measures (MEFP Box 2). The authorities reiterated their commitment not to renew temporary exemptions expiring at end-2018 (end-December SB) and finalize the action plan to rationalize tax exemptions in connection with the new Investment Code (re-introduced as new SB for end-March 2019).

    Text Table 4.

    Côte d’Ivoire: New Fiscal Revenue Measures, 2019

    article image
    Sources: Ivoirien authorities; and IMF staff estimates and projections.

  • Fuel taxes. To preserve fuel tax revenue at the budgeted level, the retail fuel prices will continue to reflect changes in world oil prices in line the price setting mechanism (re-introduced quarterly SB for 2019).

15. Beyond 2019, the authorities agreed that accelerating reform efforts to raise more domestic revenue was paramount. Over the medium term, they plan to further improve domestic revenue mobilization and keep the deficit below 3 percent of GDP while making room for public investments and pro-poor outlays. Based on analysis for the sub-Saharan African region1 and IMF technical assistance to Côte d’Ivoire, the additional tax revenue potential could indeed be as much as 3½-5 percent of GDP. This can cover about 50–75 percent of budget’s gross financing needs, in turn limiting interest outlays and creating additional fiscal space for growth-supporting spending.

C. Consolidating Fiscal Structural Reforms

16. The authorities pledged to consolidate structural fiscal reforms as outlined in their updated medium-term action plan. Those actions will strengthen governance:

  • Tax and customs administration reforms to improve efficiency, optimize property taxation, and reduce informality. New actions include the introduction of a Single Taxpayer Identification Number (STIN) and trader registration card, electronic tax filing and payment for all large and medium-sized enterprises, tax audit improvements, a taxpayer and real-estate owner census program, and the full operationalization of risk analysis (MEFP ¶19). Reforms to digitalize the tax administration and share information with other entities should improve compliance. This will be facilitated by the conversion of the Tax Account Number (Numéro de Compte Contribuable) of existing firms to STIN (modified SB for end-March 2019) and the strengthening of monitoring and controls, including via increased auditing of VAT declarations (proposed new SB for end-June 2019).

  • Actions to strengthen and modernize public finance management (MEFP ¶¶31, 41) include (i) progressing toward program budgeting; (ii) integrating payments in the expenditure system and better linking plan and execution tools; (iii) operationalizing cash advance management modules; (iv) computerizing public procurement via ministerial procurement units (MEFP ¶19); and (v) deploying the Integrated Public Procurement Management System beyond the central government (proposed new SB for end-June 2019). Progress also continues towards switching to the Treasury Single Account (MEFP ¶¶19, 47), improving the link between programming and budgeting tools for projects and analyzing recurrent investment spending, as per Public Investment Management Assessment (PIMA) recommendations (MEFP ¶¶34, 43).

  • Wage bill strategy. This strategy, in place since 2014, combines hiring of only one civil servant for every two retirees, except in the education and health priority sectors, with a more recent voluntary retirement policy in the military (MEFP Box 4). The modernization of the evaluation system for civil servants and job and skill inventories are expected to be finalized by 2020.

D. A Balanced Financing Strategy for Debt Sustainability

17. The authorities are revising their medium-term debt management strategy (MTDMS) to allow for a balanced mix of domestic and foreign currency borrowing. The previous MTDMS aimed at meeting most of the government’s gross financing needs on the regional debt market (in addition to foreign-financed project loans). However, following change in the regional debt market conditions after the BCEAO monetary policy tightening in December 2016 and informed by their successful 2017–18 Eurobond issuances the authorities have been reconsidering this strategy. They now envisage a 50-50 split between funding sources denominated in domestic and foreign currency over 2019–23, with the concomitant objectives of limiting foreign exchange risk, reducing the cost of new borrowing, minimizing portfolio risk, and fostering the development of the regional debt market. This would imply turning to international capital markets for financing in foreign currency on a regular basis, but for amounts significantly lower than in 2017–18. The proposed ceiling on the new external debt for 2019 reflects it.

18. With this new strategy, Côte d’Ivoire remains at moderate risk of debt distress but risks, especially related to external debt, are increasing. According to the debt sustainability analysis, all liquidity and solvency external debt and total public debt indicators remain below their thresholds under the macroeconomic framework of the staff report (baseline scenario). However, this strategy is subject to substantial risks from a further tightening in global market conditions and the greater potential impact of their enhanced volatility on financing terms. Furthermore, the external debt service-to-revenue ratio is projected to trend closer to its applicable threshold. Stress tests show that Côte d’Ivoire is vulnerable to adverse shocks on exports or growth, highlighting diminishing room for maneuver. In that context, the new strategy provides an explicit framework to guide the authorities’ overall debt policy, but staff stressed that it also increased risks on external debt and reiterated that carefully assessing the costs and economic return of new loans will remain crucial to preserve Côte d’Ivoire’s medium-term debt sustainability.

E. Containing Fiscal Risks

19. The authorities are taking steps to restructure some of the largest public enterprises and strengthen their oversight. State-owned enterprises’ performance has continued to improve since 2014, including at the national oil refinery SIR and energy holding company PETROCI, which have continued to implement their business plans (MEFP ¶49). The restructuring of SIR debt is expected to be completed by December 2018. PETROCI concluded the sale of its gas stations in September 2018 and privatization of its butane gas distribution network is ongoing. Air Côte d’Ivoire’s performance has been temporarily affected by rising world oil prices and adverse regional developments. Its financial situation is expected to improve in the medium term, thanks to shareholders support and optimization of its network. Reports of the financial situation of Air Côte d’Ivoire will continue to be submitted to the Ministry of Budget (semi-annual SB). Signing a performance contract with public transportation company SOTRA is envisaged after its development plan is updated.

Text Figure 2.
Text Figure 2.

Côte d’Ivoire: Performance of State-Owned Enterprises, 2012-17

(Billions of CFAF)

Citation: IMF Staff Country Reports 2018, 367; 10.5089/9781484390191.002.A001

Note: * Preliminary estimates based on 67 of 82 public enterprises.Sources: Ivoirien authorities; and IMF staff estimates.

20. A multi-faceted strategy is being implemented in the electricity sector. Protocol agreements between the government and electricity companies and a planned refinancing of debt towards electricity and gas providers—with a World Bank guarantee—should prevent new arrears accumulation and resolve existing ones (MEFP ¶¶ 19, 50). Greater network efficiency, better controls, and agreements to recover external arrears are also expected to lower operational costs and improve the financial situation of the sector.

21. Risk management of public enterprises and Public-Private Partnerships (PPP) is being strengthened. Regular updates of public enterprises’ performance, including their debt situation, are now available. Interconnections between government units and SOEs databases are improving. A financial performance dashboard and monitoring committees are to be set up for public entities under performance contracts (proposed new SB for end-June 2019), and six new performance contracts with public companies are under preparation (MEFP ¶¶41, 45). Likewise, the management of PPP-related risks is improving with the revision of the institutional framework, strengthening of the role and capacity of the National Steering Committee for Public-Private Partnership, regular reviews of PPP portfolio and related risks (e.g., 2018 audit), updates of PPP database, and integration of active PPP projects into the 2018-20 Public Investment Program (MEFP ¶¶19, 46). Capacities of all PPP-related parties will be reinforced, and a fiscal risk analysis will be presented in the draft budget law starting in 2019. The GFSM 2001/14 fiscal reporting standards will apply to financial operations of the central government starting from mid-2019 (MEFP ¶42).

F. Strengthening the Banking Sector

22. The banking sector remains broadly sound, despite remaining weaknesses in a few small banks (Tables 45). The sector is sound and profitable and continues to support solid credit expansion—projected to reach 13½ percent in 2018 and 12 percent over the medium term. The main recipients of bank credit include trade and services sectors, manufacturing, and agriculture. Transition from 2018 to a new WAEMU-wide regulatory framework aligned with Basel II/III principles will strengthen reporting and promote bank recapitalization where needed. In October, the BCEAO withdrew the license of a small bank noncompliant with prudential norms. A few others remain undercapitalized, although together they account for less than 2½ percent of the sector’s assets. Meanwhile, the fallout from the bankruptcy of a large cocoa trader is expected to be contained as banks have already provisioned part of their exposure, estimated overall at 0.6 percent of GDP (MEFP ¶54).

23. The authorities continue restructuring and recapitalizing public banks (MEFP ¶55). In June 2018, they further contributed to recapitalizing the public savings bank CNCE as part of its ongoing restructuring plan aimed at restoring profitability. Since then, they decided to recapitalize another small public bank undergoing privatization, with fund transfers to be completed early next year. Recapitalizations—with the fiscal costs of around 0.05 percent of GDP for each bank—should help these banks comply with the new WAEMU prudential rules, broadly in line with past staff advice. The authorities also reinforced the management of the public investment bank BNI, which had to increase provisions for bad loans, including from the cocoa sector.

G. Business Climate and Structural Reforms for Inclusive Growth

Improving the Business Climate

24. With the new 2018–20 reform agenda adopted in September, the authorities are persevering with reforms aimed at facilitating the conduct of business. Those measures should help support momentum toward private sector-led growth.

  • E-government services. As it is systematically assigned to new businesses and gradually rolled-out to existing firms from January 2019 within two years, the STIN is a key step in the provision of integrated on-line public services (MEFP ¶33). Online services are expected to include the delivery of licenses and business permits, tax declaration and payments, property transfers; and access to published commercial law decisions and judicial acts.

  • Governance. Compliance with the assets declaration regime has improved from 63 percent of government authorities to 75 percent between April and July 2018, but further efforts are required to align the framework with best practices, including by establishing a verification mechanism and publishing the asset declarations of high-level officials. The authorities plan to strengthen the regime by articulating a framework for cooperation between the High Authority for Good Governance and public prosecution entities. Moreover, the government plans to implement the 2016 AML/CFT law, ahead of the 2021 AML/CFT assessment by the Intergovernmental Anti-Money Laundering Group in West Africa (GIABA).

  • Regulations. Key planned reforms are to significantly reduce delivery time for construction permits, finalize the one-stop window for external trade and reduce judicial delays.

  • Agriculture. The authorities recognize that a thriving agriculture is critical to boost growth and alleviate poverty (IMF Country Report No. 18/182). They aim to develop the agribusiness sector to increase the value-added of exports and create employment, including among relatively underprivileged groups.

  • Compact with Africa. Under the auspices of this G20 Initiative, the authorities are implementing their matrix of reforms, including measures to improve the business environment. Progress will be presented soon to the private sector.

25. The revised Investment Code offers scope for lowering the foregone revenue from tax incentives, but these will continue to hamper revenue mobilization. The Code, adopted in the fall of 2018, removed banking, real estate, commerce, tobacco and liberal professions from the eligibility list and focused on agriculture, agri-business, tourism, health and education. It offers more generous tax incentives to business operations located in remote areas, with differentiated incentives based on the type of investment, stage of operation, and amount of local content or participation. Importantly, the new investment code replaced VAT tax exemptions with deferred tax credits. By limiting tax holidays, reducing incentives at the production stage relative to the investment stage and restricting eligible activities, it is estimated to contribute to some reduction of foregone revenue relative to the previous code. However, it still includes numerous tax holidays, which will continue to undermine tax revenue collection and complicate the task of the revenue administration. To narrow the scope for tax exemptions in the context of the new Code, the authorities have committed to finalizing the action plan to rationalize tax exemptions (SB for end-March 2019).

Making Growth More Inclusive

26. The authorities met the IT on pro-poor spending at end-June 2018 and continue implementing their social safety nets, but fostering inclusive growth remains a challenge. To alleviate the poverty rate, which remained elevated at 46.3 percent in 2015, the authorities are pursuing several policy actions. The government’s pro-poor spending projected to reach 9.6 percent of GDP in 2018 includes programs to improve education, health care, rural electrification, and water supply. The construction of classrooms, including in remote areas, is improving access to education, while pilots for universal health care are being deployed. Expenditure on social safety nets was mere 0.01 percent of GDP at end-2017, and most Ivoirien rely instead on informal safety nets. With support from the World Bank and bilateral partners, the authorities have been providing cash transfers to 35,000 poor households, out of a social registry of 92,000 households, and plan to expand the program gradually.

Strengthening Statistics

27. The compilation and dissemination of statistics is improving but challenges remain. Supported by technical assistance from the IMF and development partners, the authorities recently published the final 2016 national accounts and the preliminary ones for 2017. They have continued publishing quarterly national accounts measured from the supply side, but further progress is needed in compiling short-term indicators and improving the methodology for reconciling quarterly and annual national accounts. Moreover, the authorities are working towards rebasing the real GDP from 1996 to 2015, implementing the SNA 2008 and introducing industrial producer price index. Finally, they are preparing a new population census (planned for 2019) and an update of the poverty rate (last computed in 2015).

28. To tackle these challenges and better inform policy decisions, the authorities have prepared a strategy to strengthen the timely and comprehensive production of statistics. Supported by EU technical assistance, the draft National Strategy for the Development of Statistics 2017–21 aims to improve the technical and human capacities and governance of the National Institute of Statistics, as well as to outline funding mechanisms from the central government and development partners (Annex III). The authorities have committed to adopting the strategy in the Council of Ministers by end-year (proposed new SB for end-December 2018).

Program Modalities and Financing Assurances

29. The program is fully financed (Tables 6a and 6b). The country’s external financing needs in 2018–19 will be covered by market borrowing, donor financing, and Fund disbursements. Disbursements of the projected financing from donors this and next year are expected to be timely. Access to both domestic and external debt markets should be maintained during the program, with Fund financing as catalyst.

30. Capacity to repay the Fund is good. It is supported by Côte d’Ivoire’s solid track record of meeting its obligations and the authorities’ commitment to boost tax revenues by 0.5 percent of GDP from 2019. Obligations to the Fund would peak in 2019 at only 1.8 percent of government revenue or 0.4 percent of GDP (Table 7).

31. Program implementation risks. The program is on track, but revenue mobilization and expenditure challenges, as well as the impact of volatile market conditions on financing terms pose risks to the fiscal outlook. Program performance was satisfactory through end-June 2018. However, demands from the increasingly complex political environment may undermine expenditure restraint and tax revenue mobilization.

32. Safeguards assessments. An updated safeguards assessment of the BCEAO, completed in April 2018, found that the central bank has maintained a strong control environment since the last assessment in 2013 and its governance arrangements are broadly appropriate. Audit arrangements have been strengthened, International Financial Reporting Standards (IFRS) were adopted beginning with the 2015 financial statements, and a 2016 external quality review of the internal audit function found broad conformity with international standards. The BCEAO’s risk management framework established in 2014 is progressing well with implementation of its work across the bank.

Staff Appraisal

33. Despite supply shocks, economic activity remained robust and program performance was satisfactory over the first half of 2018. Growth is projected at 7.4 percent of GDP in 2018, supported by strong private investment and consumption, notwithstanding the slowdown in extractive industries and less dynamic key agriculture exports following favorable crops in 2017. All end-June 2018 PCs and ITs were met, along with three out of six applicable SBs and one implemented with delay. The medium-term growth outlook remains good, near 7 percent on average over 2019–23, sustained by recovering net exports, investments in the manufacturing and services sectors, and dynamic private consumption.

34. Beyond the growth level, the quality of growth will be critical to support Côte d’Ivoire on the path to becoming an emerging market economy. Growth should be underpinned by strong reforms to make it more private-led and benefiting the entire population, thereby ensuring both its durability and inclusiveness. To improve the business environment, the authorities are enhancing infrastructure and overhauling regulations. They are increasing pro-poor spending to upgrade human capital, develop social safety nets, and improve living conditions, including in rural areas. Pursuing these actions will require a staunch commitment over the medium term and sustainable budgetary resources to fund these development priorities.

35. Côte d’Ivoire’s commitment to the WAEMU norm of 3 percent of GDP for the 2019 budget deficit is commendable, and sound fiscal policies should continue beyond 2020. Fiscal consolidation in Côte d’Ivoire will contribute greatly to domestic and WAEMU-wide macroeconomic stability over the medium term, a key determinant for a sound and predictable business environment. In that regard, it is critical to pursue the dialogue with the private sector on the benefits of adhering to the sound fiscal policies and on concrete measures to increase tax revenues.

36. Further to achieving fiscal consolidation for the central administration, containing broader fiscal risks is key to build much-needed fiscal space. Public enterprises and PPPs present budgetary risks that should be closely monitored and addressed where needed. Agreements on performance contracts with public entities and their monitoring are strongly encouraged, and further improvements in assessing the viability and risks of PPP projects would be welcome. Furthermore, financial soundness in the public energy sector should be continuously evaluated as ongoing reforms proceed, and domestic tariffs should be adjusted if those reforms prove insufficient to ensure full cost recovery.

37. Within that framework, accelerating revenue mobilization will be needed to sustainably finance the authorities’ ambitious development program. The revenue-enhancing measures of 0.5 percent of GDP in the 2019 budget are a positive contribution to that effort but will have to be sustained over the medium term to create room for higher public investment. Indeed, raising tax revenue by 3½-5 percent of GDP over time—a reachable medium-term target by staff estimates—can be achieved by sustaining reforms in revenue administration, streamlining still-substantial tax exemptions, and extending the tax net to all sectors of the economy. In that respect, finalizing the action plan for rationalizing tax exemptions in the context of the new Investment Code will be crucial.

38. Prudent financing mix is required to safeguard Côte d’Ivoire’s debt sustainability. While Côte d’Ivoire’s risk of debt distress remains moderate, its projected ratio of external debt service to revenue is approaching the applicable threshold, which further emphasizes the need to limit debt accumulation and improve domestic revenue mobilization. Meanwhile, the authorities have revised their medium-term debt management strategy to meet gross financing through a balanced mix of domestic and foreign currency sources. While the authorities’ strategy is thereby clarified, this strategy also increases risks on external debt, and they need to conduct a careful cost-benefit analysis of any new loans to preserve diminishing room for maneuver and minimize exposure to volatile global conditions. The banking sector remains broadly stable, but pockets of vulnerability need to be addressed.

39. Policy decisions would be better informed by strengthening Côte d’Ivoire’s statistical system. The authorities are encouraged to adopt as soon as possible their strategic framework, developed with EU assistance, with a view to providing more predictable funding, improved governance and better coordination mechanisms for the production of statistics.

40. Staff supports the authorities’ request for the completion of the fourth reviews under the ECF and EFF arrangements, which would release disbursements equivalent to SDR 96.786 million (Table 8). Staff supports the authorities’ request for modification of (i) the PC on the net domestic financing for end-2018; (ii) two ITs, on the government tax revenue and primary basic fiscal balance; and (iii) the SB on the roll-out of the STIN. The attached Letter of Intent (LOI) and Memorandum of Economic and Financial Policies (MEFP) set out appropriate policies to pursue the program’s objectives. The capacity to repay the Fund is adequate, and risks to program implementation are manageable given the government’s solid track record for policy actions.

Table 1.

Côte d’Ivoire: Selected Economic Indicators, 2015–23

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Sources: Ivoirien authorities; and IMF staff estimates and projections.

Ratios to GDP rebased with the updated lower nominal GDP reflecting downward revisions to the national accounts for 2016-17.

Defined as total revenue minus total expenditure, excluding all interest and foreign-financed investment expenditure.

Table 2a.

Côte d’Ivoire: Balance of Payments, 2015–23

(Billions of CFA francs; unless otherwise indicated)

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Sources: Ivoirien authorities; and IMF staff estimates and projections.

In the CFA franc zone, Fund resources are channeled via the regional central bank that provides equivalent domestic currency credit to the relevant government.

Table 2b.

Côte d’Ivoire: Balance of Payments, 2015–23

(Percent of GDP; unless otherwise indicated)

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Sources: Ivoirien authorities; and IMF staff estimates and projections.

Ratios to GDP rebased with the updated lower nominal GDP reflecting downward revisions to the national accounts for 2016-17.

In the CFA franc zone, Fund resources are channeled via the regional central bank that provides equivalent domestic currency credit to the relevant government.

Table 3a.

Côte d’Ivoire: Fiscal Operations of the Central Government, 2016–23

(Billions of CFA francs, unless otherwise indicated)

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Sources: Ivoirien authorities; and IMF staff estimates and projections.

In 2017, includes one-off payments to soldiers of about FCFA 101 billion.

In the CFA franc zone, Fund resources are channeled via the regional central bank that provides equivalent domestic currency credit to the relevant government.